TD Cowen 2023 Human Capital Management Survey
Insight by Jared Levine, J. Derrick Wood, Bryan Bergin, Andrew Sherman, Zachary Ajzenman, Cole Erskine and Jared Jungjohann
The TD Cowen Insight
TD Cowen’s 2023 Human Capital Management (HCM) Survey relays spending trends, adoption rates, switching intentions, and vendor positioning for 2,310 respondents in SMB, mid-market, and enterprise organizations. Survey results suggest stability in HR tech spend in 2H23- 1H24. Resilient human capital management solution spending indications counter more dire views of slowing macro environment having outsized impact on demand.
Anticipating Resilient HCM Sector Growth
We anticipate relative resiliency in HCM growth, adjusted for the impact of moderating labor growth through 1H24, based on our survey. HCM stocks have generally underperformed other tech sectors due to market views of imminent recession, near-peak interest rates, and an expectation of HCM demand being materially impacted by macro uncertainty. Our survey’s more stable spending data counters the consensus view of a slowing macro environment having an outsized impact on HCM sector growth.
TD Cowen Human Capital Management Survey
Our HCM survey provides an updated view on HCM solution spending trends, adoption rates, vendor switching intentions, vendor positioning, and buyer behaviors. It covers the full spectrum of HR buyers as it includes participants across industries and employer size segments.
The data is primarily focused on payroll and HRMS. We partnered with leading industry advisor/consultant, Sapient Insights Group, to survey 2,310 organizations globally. The report provides takeaways for both pure-play HCM software and services vendors and ERP vendors.
HR Tech Spend to Grow Steadily
Our 2023 survey reflects stability in HR tech spend (over 2H23-1H24), led by enterprise and mid-market organizations. 41% of all organizations cited increasing HR tech spend y/y for 2H23-1H24, versus just 7% decreasing spend. The net increasing spend mix (% increasing less % decreasing) of 34% is relatively consistent with the net 35% relayed from the same respondents for the prior year period. Despite a slight decrease in the mix of net increasing spend indications, the average HR tech spend increase is projected to uptick to 4.0% y/y from 3.3% for the prior year period.
Spending Indicators Favor Larger Organizations
Spending indications are most favorable for organizations with 5,000+ employees at 44% net increasing followed by 500-4,999 organizations at 41%, and weakest for 1-499 organizations at 26%. The average HR tech spending increase for 2H23-1H24 y/y mirrors this ranking with enterprise projected at 5.7% y/y, mid-market at 4.8% y/y, and SMB 3.0% y/y.
Near-Term HCM Growth Projections
Overall, resilient survey data of HCM spend intentions increases our confidence in modeled near-term growth projections across coverage despite a moderating macro environment. The HCM software and services market is conservatively estimated as a $150B+ global TAM. 4% growth in HCM tech spend implied in our survey for 2H23-1H24 y/y is modestly below the global market growth rate estimates that have been previously cited in the mid-single digits by leading vendors. However, several of the HCM vendors under our coverage are growing well in excess of that growth rate demonstrating ongoing share gains and relative exposures. We do not see that dynamic changing over the medium term.